Thursday, November 19, 2009

U.S. economy in sustained, gradual recovery

Don't believe the impatient fear mongers. A slow, but steady, recovery is in process. From Bloomberg:
The U.S. economic recovery will extend into next year as manufacturing expands and the pace of firings abates, reports today indicated.

The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, rose 0.3 percent in October, preserving a string of gains that began in April. Other reports showed claims for jobless benefits held at a 10-month low and Philadelphia-area manufacturing accelerated.

The rally in stock prices, low short-term interest rates and slowing job losses that propelled the leading index signal consumer confidence and spending are likely to stabilize, limiting the risk the economy will retrench. The data supported Treasury Secretary Timothy Geithner’s forecast today that the emerging expansion will be sustained into 2010.

“It’s very clear that the economy is now expanding, but I don’t see it being a vigorous expansion,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who correctly forecast the leading index. “We are seeing a gradual improvement, but the key word is ‘gradual.’”

Saturday, November 14, 2009

Why eminent domain should be used sparingly

This is karma:
The private homes that New London, Conn., took away from Suzette Kelo and her neighbors have been torn down. Their former site is a wasteland of fields of weeds, a monument to the power of eminent domain.

But now Pfizer, the drug company whose neighboring research facility had been the original cause of the homes' seizure, has just announced that it is closing up shop in New London.

To lure those jobs to New London a decade ago, the local government promised to demolish the older residential neighborhood adjacent to the land Pfizer was buying for next-to-nothing. Suzette Kelo fought the taking to the Supreme Court, and lost. Five justices found this redevelopment met the constitutional hurdle of "public use." ...

Scott Bullock, Kelo's co-counsel in the case, told me: "This shows the folly of these redevelopment projects that use massive taxpayer subsidies and other forms of corporate welfare and abuse eminent domain."
The City of New London forcibly took people's homes away from them and got what in return? A field of weeds and jobs that are gone in a decade? Screw the City of New London.

Saturday, November 7, 2009

How the crisis could change economic theory

Here's an interesting look at how the housing bubble may change macroeconomic theory.
The crisis exposed the inadequacy of economists' traditional tool kit, forcing them to revisit questions many had long thought answered, such as how to tame disruptive boom-and-bust cycles. ...

"We could be looking at a paradigm shift," says Frederic Mishkin, a former Federal Reserve governor now at Columbia University.

That shift could change the way central bankers do their job, possibly leading them to wade more deeply into markets. They could, for example, place greater emphasis on the amount of borrowing in the economy, rather than just the interest rates at which borrowing is done. In boom times, that could lead them to restrict how much money various players, ranging from hedge funds to home buyers, can borrow.

Friday, November 6, 2009

October 2009 unemployment and jobless numbers

The unemployment rate has reached the highest level since the early 1980s, rising to 10.2% in October 2009. The last time the U3 (official) unemployment rate was this high was April, 1983. (As a kid back then, it really didn't seem that bad—although I'm doing well now, too.)

Initial weekly unemployment insurance claims continue to improve—or more precisely, they are getting worse at a slower rate. This graph shows year-over-year numbers. Ideally, we'd like the YoY numbers to be below zero for an extended period of time.

The government's job loss numbers show a continuing, but slowing, contraction in the job market. Remember, we need monthly job gains of 100,000-200,000 just to keep up with population growth.

For conspiracy theorists who don't believe the government's numbers, here are the monthly job loss numbers as measured by Automatic Data Processing, Inc.

Thursday, November 5, 2009

Home buyer tax credit = more global warming

According to Harvard economist Edward Glaeser, Congress and the White House are intent on harming the planet:
ENVIRONMENTALISTS who are worried about global warming should pay attention to the congressional debate about extending the home buyers tax credit. Federal tax policies toward housing have long encouraged Americans to emit more carbon. President Obama could do the country, and the planet, a service by either refusing to sign the extension of the $8,000 credit or by insisting that it be accompanied by offsetting reductions in the home mortgage interest deduction.

According to the Residential Energy Consumption Survey, per person energy use in owner-occupied housing is 39 percent higher than in rental units. Energy use, per household member, is 49 percent higher in single-family detached houses than in apartments in buildings with more than five units. These differences reflect the strong connection between home size and energy use. The average four-bedroom house consumes 72 percent more electricity than the average two-bedroom house.

Yet the tax code encourages Americans to live in big, energy-guzzling homes, instead of thrifty apartments, and Congress seems intent on further unbalancing the federal budget to egg on home buyers.